Some losses were expected in the opening salvos of the streaming war, but the battlefield’s proving a bit more hazardous than most investors were expecting.
While that’s largely been thanks to factors outside the streaming services’ control, the industry’s biggest players have faced no shortage of bumps on the road to digital supremacy, some less anticipated than others.

Compared to the 23.4 percent drop in the S&P 500 since the start of 2022, shares in Walt Disney Co. have suffered just shy of a 40 percent drop to $94.34 a share as of market close on June 17; stock for the parent company of the Hollywood-based Paramount Pictures Corp. has suffered a 24 percent drop since year’s start, continuing a downward trend that began well ahead of most of its competitors.

“Across the board Disney, Netflix, Apple – everybody’s getting their teeth kicked in recently,” said Joshua Lastine, an entertainment attorney who represents content creators and production companies working in the streaming industry. “But financial gurus have been ringing alarm bells about the economy from a macro perspective for a while, and to the extent that no business is doing good right now, it’s hard to take a look at one particular streamer and say they’re losing the battle.”

The streaming wars’ most significant players have suffered an essentially equal amount of woes from the start, Lastine said, and many of them have been unrelated to the actual content offered by the company. He offered Disney’s resistance to the controversial “Don’t Say Gay” bill in Florida and the subsequent political fallout as a prime example of an unexpected hitch in plans.

“There haven’t been many clear victories in the first 16 months, and thanks to a number of factors, there may not be many in the next 16 months,” said Lastine. “That said, this is going to be a great time for those companies to get introspective, to take a step back and retool the things that haven’t been working.”

The Los Gatos-based Netflix Inc. has seen the most significant stumble among streaming leaders with a 71 percent year-to-date decrease, accompanied by considerable amounts of bad news. A June 20 Variety report stated that the company was anticipating laying off another 150 full-time employees (the same number of employees it laid off in May) alongside dozens of contractors and part-timers.

Netflix’s recent misfortunes have been largely precipitated by troubling subscriber numbers; in a letter to investors in April, company executives noted that its most recent quarterly report would reflect the loss of 200,000 subscribers – the first time the service has failed to gain customers in more than 10 years.

“The streaming numbers were disappointing; part of it is that now that the economy is opening back up from a COVID perspective they’re going inside more, they’re not staying home and watching Netflix,” said Dean Kim, the head of equity research for William O’Neil + Co. “And the other issue is they’re running into a wall with saturation of new subscribers; that’s something they’re dealing with that’s being exacerbated by their competition.”

But the company’s mighty fall really only came about because it flew the closest to the sun, according to Rich Raffetto, president of the downtown-based City National Bank.
“I think the humbling of valuations of companies like Netflix was somewhat expected, as subscriber growth wouldn’t go on forever,” said Raffetto, who is in charge of City National’s National Corporate Banking, Specialty Banking, Commercial Banking, Entertainment Banking, Real Estate Banking and Personal & Business Banking divisions. “As the leader in the industry, Netflix flew the highest and had the furthest to fall. But whether it’s Paramount+ or Hulu, there needs to be a rationalization of the value for the services they’re offering.”

Issues aside, investors unfazed

If there’s any cause for concern, you wouldn’t know it from looking at the private equity firms and investment banks funding the content churn.
Raffetto said entertainment has long been a core sector among City National Bank’s diversified assets, and clients remain enthusiastic about the potential of companies in and related to streaming.

As the leader in the industry, Netflix had the furthest to fall.
Rich Raffetto
City National Bank

“I think clients in the entertainment world are excited about the digital world and leveraging the power of financial tech capabilities,” he said.
The bank’s been investing heavily in three of its fully owned subsidiaries, including entertainment-focused, Studio City-based intellectual property firm FilmTrack Inc. and the entertainment industry payment servicer Exactuals LLC in Westwood Center.

Sean Pope, an entertainment attorney at the production-focused legal firm Ramo Law PC, said content creators have kept up at a similarly energetic pace.

“These companies set the firehose at full blast to get their platforms off the ground, and we’re seeing that volume continue in order to maintain a subscriber base, ” he said. “These companies want to ensure subscribers aren’t just signing up for that season of Disney+ for the Mandalorian and unsubscribing.”

Pope said maintaining that content flow has remained a priority for all major streamers, even if some are starting to rethink their overall strategy and place in the market.
“We’re definitely hitting a stage two, where a lot of it is about maintaining that subscriber base. From my perspective, we haven’t seen a really significant downshift in the number of streamers,” he said. “But all of these companies are terrified of losing that streamer base – that’s how Wall Street judges a company like Netflix.”

Pope said the downturn could provide a good opportunity for streamers who have failed thus far to stake their claim over a particular content niche to catch up. Disney has Star Wars, Marvel, and a deep roster of children-friendly legacy characters to rely on, he noted, while Amazon Prime Video has spent big to acquire the IP rights for a Lord of the Rings extended universe.

HBO, owned by Warner Bros. Discovery, is resurrecting its “Game of Thrones” series with the announcement of more than a half-dozen spin-off shows.
The high cost of these products might make for less content overall, Pope said, but that could just mean a return to quality over quantity, a win for consumers.

“Content budgets won’t necessarily go down, but these companies are realizing they’ve got to make smarter plays. Making more big-name content, and less vanity projects,” he said.
Once some competitors in the fight for streaming supremacy start to seriously fall behind, Raffetto said he expected they’d start to make peace with their former enemies through the establishment of hybridized “bundle” plans. Between the push towards quality and the potential for cheaper (and critically, fewer) plans, the streamers’ losses could prove the consumers’ gain.

Another apparent benefit of the loosening of streaming’s stranglehold is the resurgence of their once endangered competitor, the movie theater. Raffetto noted the runaway success of big budget, post-COVID blockbusters like “Top Gun: Maverick,” which is currently on its way to breaking $1 billion at the box office, and the success of recent film festivals like Tribeca.

“Audiences are saying they not only want to see these productions, they want to see them in a movie theater with their friends. Audiences are growing increasingly comfortable with that experience again,” he said. “Theater owners are going to have to continue to evolve, but reports of the death of the theatrical experience have been greatly exaggerated, to paraphrase Mark Twain.